The Bank of England’s governor, Andrew Bailey, emphasized the necessity of proper supervision for stablecoins to maintain financial stability. During a press conference held at the Institute of International Finance in Washington on April 12, Bailey asserted that stablecoins should be subject to regulations similar to those governing fiat currency.
Bailey argued that stablecoins lack an “assured value,” a critical attribute that investors seek in this digital currency designed to emulate fiat money. Therefore, he believes the United Kingdom must establish a stringent regulatory framework comparable to traditional financial products.
The Importance of Assured Value in Stablecoins
Bailey stated, “As we have seen, they [the stablecoins] do not have assured value, and in work we have done at the Bank of England, we have concluded that the public should expect assured value in digital money and confidence in this is needed to underpin financial stability.”
He further cautioned that stablecoins must meet the same standards and regulations as fiat money to function effectively. To date, no stablecoin has achieved this status.
Bailey also highlighted the importance of regulators considering appropriate liquidity buffers to address potential banking crises or bank runs, such as the recent Silicon Valley Bank event that impacted thousands of investors.
The Bank of England is closely monitoring the development of digital money to determine the feasibility of issuing a Central Bank Digital Currency (CBDC). While digital money has existed for decades, the technology used to manage it, such as blockchain, has evolved. Blockchain offers a decentralized, auditable method for transferring money more efficiently, but centralization remains the norm for legal, geopolitical, and practical reasons.
The Need for an Anchor in the Digital Money Landscape
Bailey believes that digital money should not solely exist in CBDCs. However, creating an “anchor to the value of all forms of money is likely necessary. That includes new digital ones and ensures the maximum opportunity for innovation in payment services.”
Regulators have debated stablecoin regulation for several years but have yet to agree on the required measures to safeguard investors. Kristin Smith, Executive Director of the Blockchain Association, suggests this may be because U.S. watchdogs are more concerned about the illicit uses of stablecoins, such as money laundering or terrorism financing, rather than their everyday use as a digital currency.
Smith also mentioned that cryptocurrencies are “much more transparent than we see in the traditional financial services system.” However, she acknowledged that the crypto market and stablecoins must be appropriately regulated to avoid impeding technological innovation.
Jeremy Allaire, CEO of Circle, the company behind the world’s second-largest stablecoin, USDC, recently argued that stablecoins should not be regulated by the SEC. Allaire maintained that the agency lacks the qualifications and mandate for such oversight and that there are other better-equipped custodians in the country for this role.